Objective 9 Be aware of the basic documents used in Estate Planning 9

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1 Objective 9 Be aware of the basic documents used in Estate Planning 91Scope and characteristics of personal financial planningUnderstand “Cash Flow”Know how to prepare an initial Personal Budget EstimateKnow how to track Monthly Income, Taxes, LES & Other IncomeDeductions, Loan & Credit Balance Payments, and Monthly LivingExpensesKnow how much Savings you need to set conditions for informedInvestingBe familiar with Risk Management a.k.a InsuranceUnderstand the role of Credit and performance as a borrowerBe aware of the “Magic of Compound Interest” Rates of Return. . . financial objectives Financial Independence. . . “Set Conditions” for Future Classes on “Investments & Investing”23456789Be aware of the basic documents used in Estate Planning

5 Intestate ~ TestateTo die “intestate” is to die without a valid will or to diewith a will which does not dispose of all property.A decedent who has a valid will is said to die “testate.”Intestacy can occur because . . .A will was not written, orthe will fails to dispose of some property, or becausethe will is invalid.. . . but don’t worry if you die intestate, the State willdistribute your property to your heirs under the StateIntestate Succession Law.From: “Estate Planning for Financial Planners,” Michael A. Dalton & Thomas P. Langdon, Money Education TM, 3d Ed, 2004; ISBN

6 Extracts from a Sample State Intestate Succession LawReviseSurviving spouseEntire estate if not survived by “issue” childrenIf “issue,” spouse get 1st $50,000 plus one half remainingOf the remaining, or the entire estate, if no issue . . .Decedent’s “issue”, taking by representation (per stirpes)Decedent’s parent or parents equallyIssue of decedent's parents, taking by representation. . . and more to follow

7 Will ~ Power of Attorney ~ Trusta legal document that provides the testator, or willmaker, the opportunity to control the distribution ofproperty, appoint an executor, and avoid the state’sintestacy law distribution scheme.Power of Attorneya legal document that authorizes an agent to act ona principal’s behalf.Trusta structure that vests legal title (the legal interest) toassets in one party, the trustee, who manages thoseassets for the benefit of the beneficiaries (who hold theequitable title) of the trust.From: “Estate Planning for Financial Planners,” Michael A. Dalton & Thomas P. Langdon, Money Education TM, 3d Ed, 2004; ISBN

10 Types & Uses of Trusts Living Trust (Revocable)Used to manage assets. Protects in emergencies,such as medical. Avoids publicity and probate.Property is included in the gross estate of the grantor.Irrevocable Trust(Inter Vivos)Used to make gifts. Grantor relinquishes control ofassets. Assets not included in gross estate of grantor.TestamentaryTrustCreated by the will. Property is included in the grossestate and does not avoid probate. Used to manageassets of heirs.Trust for MinorsManages assets for minors. May shift income taxburden to lower-bracket taxpayer.Irrevocable LifeInsuranceTrust (ILIT)Irrevocable. Usually created during lifetime, used tohold an insurance policy, and thus remove the proceedsfrom the insured’s gross estate. Usually providesincome to the spouse, and corpus to children.

13 Living & Testamentary TrustsRevocable Living TrustLiving & Testamentary Trustsa revocable trust that is managed by the grantor and is for the benefit of the grantor during his lifetime. The property transferred to the trust avoids the individual’s probate estate but is included in the individual’s gross estate.Revocable Trusta trust created where the grantor of the trust retains the right to revoke the trust at any time prior to his incapacity or death.Irrevocable Trust used for Estate & Gift Tax Planningtrust created by a grantor that cannot be revoked. The grantorcannot take back property that was transferred to the trust.For this reason, the property is excluded from his gross estateTestamentary TrustA trust created at the death of the grantor. The grantor’s will generally includes all trust provisions.From: “Estate Planning for Financial Planners,” Michael A. Dalton & Thomas P. Langdon, Money Education TM, 3d Ed, 2004; ISBN